FATF Move May Place Pakistan on Watchlist

A motion has been made by the US and its European allies for the Financial Action Task Force (FATF) to place Pakistan on a watchlist for countries who are non-compliant with worldwide financial regulations.  Pakistan is one of 37 nations who are members of FATF, a group that sets the worldwide standards for combating financial crimes, as well as a member on FATF’s branch group, the Asia-Pacific Group.

When asked during a media briefing on February 15, Dr Mohammad Faisal, Foreign Office spokesperson stated that he believes the motivation behind this motion is to impede Pakistan’s economic growth.  While senior bankers are confident this motion will not pass due to FATF’s strict concerns to fight illicit financing, none are willing to go on the record to voice their statements. Rana Muhammad Afzal, State Minister for Finance, has said that the government strongly opposes adding Pakistan to the watchlist, and that the Prime Minister and the Interior Minister are currently overseas in order to gain support for Pakistan.  

Pakistan was already placed on the watchlist in 2012, but was removed after the country made improvements to its Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regimes in February 2015.  During the three years Pakistan spent on the watchlist, senior bankers had to explain to their corresponding banks that this placement was not due to the banks themselves not being up to the world’s compliance levels, but due to a few organizations prohibited by the UN who were not fully compliant to FATF’s standards.

In response, Pakistan has tightened their controls on all transactions to ensure that all AML and CFT regulations of the State Bank of Pakistan are being followed.  At the beginning of this month, Pakistan has also successfully passed a law which made all UN-proscribed organizations and individuals automatically prohibited in Pakistan as well.  This allowed the state to freeze bank accounts belonging to the prohibited organizations and block the sources of their funds.  This law has already helped the Punjab authorities to take over the assets of Jamaatud Dawa, a missionary group, and Falaf-i-Insaniyat Foundation, a charity group both run by Hafiz Muhammad Saeed who caused the Mumbai bombing.

While Pakistan has been improving their compliance regulations, it is also important to recall that in the past, flaws and weaknesses in their systems have caused money laundering which could have been avoided.  Earlier this month, SBP Governor Tariq Bajwa was appointed by the Supreme Court to lead a committee dedicated to finding ways to recover funds stashed away illegally in banks.  Habib Bank Ltd was also forced to pay $225 million in fines by the Department of the Financial Services (DFS) of New York after failing to follow laws meant to combat illicit money transfers in September of last year.  Shortly afterwards, the State Bank of Pakistan updated their AML and CFT regulations and is now also exploring stronger know-your-customer (KYC) regimes.

De facto Finance Minister, Miftah Ismail, stated that Pakistan has been in touch with the US, Germany, France and the UK to remove the motion but is hopeful that in the event the US does not withdraw their motion, Pakistan will not end up on the watchlist.  A head of a local bank in Pakistan has also said that “When the FATF meets in Paris next week, Pakistan can comfortably explain we are more seriously cracking down on terror financing than the US is willing to acknowledge.”


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